BANK OF HAWAII CORPBOH
BANK OF HAWAII CORP Income Taxes Disclosure
Income Taxes
Provision for Income Taxes
The components of the Company’s provision for income taxes for the years ended December 31, 2025, 2024 and 2023 were as follows:
| (dollars in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 54,544 | $ | 56,974 | $ | 59,084 | |||||||||||
| State | (976) | 3,103 | 8,035 | ||||||||||||||
| Total Current | 53,568 | 60,077 | 67,119 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | 4,765 | (8,805) | (8,800) | ||||||||||||||
| State | (2,253) | (3,415) | (2,405) | ||||||||||||||
| Total Deferred | 2,512 | (12,220) | (11,205) | ||||||||||||||
| Provision for Income Taxes | $ | 56,080 | $ | 47,857 | $ | 55,914 | |||||||||||
The tax effects of fair value adjustments on AFS investment securities, the amortization of unrealized gains and losses related to investment securities transferred to HTM, and the minimum pension liability adjustment are recorded directly in consolidated shareholders’ equity as a component of accumulated other comprehensive loss. The net tax charge recorded was $35.7 million, $19.2 million, and $13.7 million for the years ended December 31, 2025, 2024, and 2023, respectively. Excess tax benefits related to share-based compensation are recorded as a reduction of the provision for income taxes.
Deferred Tax Assets and Liabilities
As of December 31, 2025 and 2024, significant components of the Company’s deferred tax assets and liabilities were as follows:
| December 31, | |||||||||||
| (dollars in thousands) | 2025 | 2024 | |||||||||
| Deferred Tax Assets: | |||||||||||
| Allowance for Credit Losses | $ | 39,319 | $ | 39,907 | |||||||
| Minimum Pension Liability | 7,305 | 8,439 | |||||||||
| Accrued Expenses | 23,627 | 22,361 | |||||||||
| Operating Lease Liabilities | 24,494 | 23,538 | |||||||||
Restricted Stock | 6,658 | 5,975 | |||||||||
| Net Unrealized Losses on Investment Securities | 80,867 | 115,416 | |||||||||
| Low Income Housing Investments | 10,667 | 8,512 | |||||||||
| Other | 22,481 | 23,304 | |||||||||
| Gross Deferred Tax Assets Before Valuation Allowance | 215,418 | 247,452 | |||||||||
| Valuation Allowance | (13,261) | (9,740) | |||||||||
| Gross Deferred Tax Assets After Valuation Allowance | 202,157 | 237,712 | |||||||||
| Deferred Tax Liabilities: | |||||||||||
| Accrued Pension Cost | (11,270) | (11,270) | |||||||||
| Lease Transactions | (21,575) | (20,234) | |||||||||
| Operating Lease Right-of-Use Assets | (22,114) | (21,251) | |||||||||
| Other | (14,863) | (15,444) | |||||||||
| Gross Deferred Tax Liabilities | (69,822) | (68,199) | |||||||||
| Net Deferred Tax Assets | $ | 132,335 | $ | 169,513 | |||||||
Both positive and negative evidence were considered by management in determining the need for a valuation allowance. Negative evidence included the uncertainty regarding the generation of capital gains in future years and restrictions on the ability to sell low-income housing investments during periods when carrybacks/carryforwards of capital losses are allowed. Positive evidence included capital gains in the carryback years, if any. After considering all available evidence, management determined that a valuation allowance to offset deferred tax assets related to low-income housing investments that can only be used to offset capital gains was appropriate. Management determined that a valuation allowance was not required for the remaining deferred tax assets because it is more likely than not that these assets will be realized through future reversals of existing taxable temporary differences, and there will be sufficient future taxable income exclusive of reversing temporary differences. As of December 31, 2025 and 2024, the Company carried a valuation allowance of $13.3 million and $9.7 million, respectively, related to the deferred tax assets established in connection with the low-income housing investments.
Certain events covered by Internal Revenue Code Section 593(e) will trigger a recapture of base year reserves of acquired thrift institutions. The base year reserves of acquired thrift institutions would be recaptured if an entity ceases to qualify as a bank for federal income tax purposes. The base year reserves of thrift institutions also remain subject to income tax penalty provisions that, in general, require recapture upon certain stock redemptions of, and excess distributions to, shareholders. As of December 31, 2025, retained earnings included $18.2 million of base year reserves for which the deferred federal income tax liability of $4.8 million has not been recognized.
Effective Tax Rate
The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the years ended December 31, 2025, 2024 and 2023:
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||
| (dollars in thousands) | Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||
| $ | 55,016 | 21.00 | % | $ | 41,549 | 21.00 | % | $ | 47,694 | 21.00 | % | |||||||||||||||
| State Taxes, Net of Federal Income Tax Benefit | (2,507) | (0.96) | 343 | 0.17 | 5,005 | 2.20 | ||||||||||||||||||||
| Tax credits | ||||||||||||||||||||||||||
| Low-Income Housing Investments Amortization, Net of Tax Benefits | 4,095 | 1.56 | 5,731 | 2.90 | 2,797 | 1.23 | ||||||||||||||||||||
| Investment Tax Credits | (1,380) | (0.53) | (1,041) | (0.53) | (845) | (0.37) | ||||||||||||||||||||
| Changes in valuation allowances | 2,845 | 1.09 | 2,237 | 1.13 | 263 | 0.12 | ||||||||||||||||||||
| Nontaxable or nondeductible items | ||||||||||||||||||||||||||
| Nondeductible Compensation | 1,457 | 0.56 | 2,306 | 1.17 | 1,801 | 0.79 | ||||||||||||||||||||
| Bank-Owned Life Insurance | (4,108) | (1.57) | (2,852) | (1.44) | (2,419) | (1.07) | ||||||||||||||||||||
| Tax-Exempt Income | (3,105) | (1.19) | (1,779) | (0.90) | (1,138) | (0.50) | ||||||||||||||||||||
| Other reconciling items | ||||||||||||||||||||||||||
| Other | 3,767 | 1.44 | 1,363 | 0.69 | 2,756 | 1.21 | ||||||||||||||||||||
| Income Tax Expense and Effective Tax Rate | $ | 56,080 | 21.40 | % | $ | 47,857 | 24.19 | % | $ | 55,914 | 24.62 | % | ||||||||||||||
Unrecognized Tax Benefits
The Company is required to record a liability, referred to as an unrecognized tax benefit (“UTB”), for the entire amount of benefit taken in a prior or future income tax return when the Company determines that a tax position has a less than 50% likelihood of being accepted by the taxing authority. The following presents a reconciliation of the Company’s liability for UTBs for the years ended December 31, 2025, 2024 and 2023:
| (dollars in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Unrecognized Tax Benefits at Beginning of Year | $ | 5,340 | $ | 3,737 | $ | 3,696 | |||||||||||
| Gross Increases, Related to Tax Positions Taken in a Prior Period | — | 1,276 | 54 | ||||||||||||||
| Gross Decreases, Related to Tax Positions Taken in a Prior Period | (856) | — | — | ||||||||||||||
| Gross Increases, Related to Current Period Tax Positions | 160 | 540 | 27 | ||||||||||||||
| Lapse of Statute of Limitations | (1,126) | (213) | (40) | ||||||||||||||
| Unrecognized Tax Benefits at End of Year | $ | 3,518 | $ | 5,340 | $ | 3,737 | |||||||||||
As of December 31, 2025 and 2024, $3.5 million and $5.3 million, respectively, in liabilities for UTBs were related to UTBs that if reversed would have an impact on the Company’s effective tax rate.
The Company classifies interest and penalties, if any, related to the liability for UTBs as a component of the provision for income taxes. The recorded net tax benefit for interest and penalties was $0.5 million and less than $0.1 million for the years ended December 31, 2025 and 2023, respectively. The recorded net tax expense for interest and penalties was $0.3 million for the year ended December 31, 2024. As of December 31, 2025 and 2024, the balance of the accrual for possible interest and penalties was $0.9 million and $1.4 million, respectively.
The federal tax returns for 2022 through 2024 remain subject to examination. The Company’s State of Hawaiʻi income tax returns for 2017 and 2021 through 2024 remain subject to examination by the taxing authorities.
The following table presents cash paid for federal and state income taxes for the years ended December 31, 2025, 2024 and 2023.
| (dollars in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Cash Paid for Federal Income Taxes | $ | 23,375 | $ | 21,650 | $ | 42,500 | |||||||||||
| Cash Paid for State Income Taxes | 1,527 | 9,590 | 9,746 | ||||||||||||||
| Total Cash Paid for Income Taxes | $ | 24,902 | $ | 31,240 | $ | 52,246 | |||||||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 24, 2026 | Showing above |
| 2024 | Mar 4, 2025 | |
| 2023 | Feb 29, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Mar 1, 2022 | |
| 2020 | Mar 1, 2021 | |
| 2019 | Mar 2, 2020 | |
| 2018 | Mar 1, 2019 | |
| 2017 | Feb 28, 2018 | |
| 2016 | Feb 27, 2017 | |
| 2015 | Feb 29, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.